Home loan interest rates: Federal Treasurer Josh Frydenberg orders report from ACCC

Treasurer Josh Frydenberg wants the Australian Competition and Consumer Commission to deliver a report on how banks make pricing decisions after Reserve Bank reductions, as well as their so-called loyalty tax on existing customers, by the end of march.

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The federal government has ordered the competition watchdog to probe the home-loan market after major banks’ repeated failure to pass on Reserve Bank interest rate cuts.

By the end of March, Treasurer Josh Frydenberg wants the Australian Competition and Consumer Commission to deliver a report on how banks make pricing decisions after RBA reductions, as well as their so-called loyalty tax on existing customers.

As revealed by The Daily Telegraph, the gap between what new borrowers are ­offered and the average rates paid by longstanding borrowers is now as much as 0.8 percentage points.

The ACCC will have a further six months to examine barriers to switching lenders.

Its chairman Rod Sims has been told to focus his inquiry on price movements since the start of the year.

ACCC Chair Rod Sims has been told to focus his inquiry on price movements since the start of the year. Picture: Kym Smith

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The RBA has lowered the cash rate three times in 2019 — in June, July and earlier this month — each time by 0.25 percentage points.

In response, the major banks have reduced their ­standard variable rates by an average total of just 0.57 percentage points, thereby keeping 18 basis points for themselves.

RBA Governor Philip Lowe. Picture: Milan Scepanovic

While it has been the case for years that big lenders have not always passed on RBA cuts in full, the RBA recently made it clear that the typical excuse given by the four pillars — high funding costs — does not wash in the current ­environment.

RBA Governor Philip Lowe in June said that month’s “reduction in the cash rate should be fully passed through to variable mortgage rates” in a marked departure from his usually guarded approach to retail pricing. He said lenders were in a position to do so because of falls in funding costs.

It is understood the RBA also believes more of the ­October cut should have been shared with customers. The majors passed on just 13 to 15 basis points.

Mr Frydenberg yesterday said the consequences were not good for customers — or the economy.

“The failure of the banks to fully pass on the recent rate cuts to their customers when their cost of funds have come down significantly, leaves them exposed to the charge that they are putting their profits before their customers,” Mr Frydenberg said.

“With this new inquiry the government is providing the banks with an opportunity to transparently account for their decision-making and how they balance the needs of borrowers, savers, shareholders and the wider community.”

Treasurer Josh Frydenberg speaks to media last week. Picture: AAP

The ACCC’s report will also look at rates charged by small banks and non-bank lenders. Some have passed on the entirety of this year’s RBA cuts. It is also likely to look at delays in rate reductions.

Compared to other countries, banks in Australia have an unusually high share of the home-loan market. For example, in the US, non-banks hold more than half the market.

Originally published as Home loan interest rates: Federal Treasurer Josh Frydenberg orders report from ACCC